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Amazon Strikes a New Blockchain Partnership

The company's new alliance lets it use and host blockchain technology without having to also develop it.

Unless you've been living under a rock for the better part of last year, you know the topic of cryptocurrencies has dominated the financial news in 2017 and early 2018. And yet, it may not be the currencies themselves, but rather the technology upon which they are based -- called blockchain -- that makes the biggest impact over the long term. Last year's blockchain-for-business headlines largely centered around leader IBM(NYSE:IBM) and its engagements with several large conglomerates for supply chain, food safety, and personal privacy solutions.

However, many of the blockchain standards have been set at the open-source Hyperledger Project. This means the technology backbone for these blockchain solutions is free for other companies to implement, and Amazon(NASDAQ:AMZN), the leading player in public cloud infrastructure, just announced a big partnership in this emerging technology.

Amazon is partnering its way into blockchain technology. Image source: Getty Images.

Teamwork on the block

Amazon's new partnership is with technology consulting firm Luxoft Holding(NYSE:LXFT). Luxoft will join five others as one of six technology consulting firms to offer blockchain solutions certified to run on Amazon Web Services (AWS).

Vasiliy Suvorov, vice president of technology strategy at Luxoft, said: "Blockchain is about removing data silos, improving trust and operational efficiencies. By using AWS to deploy and integrate DLTs [Distributed Ledger Technologies] into day-to-day processes, businesses can revolutionize how they operate."

Luxoft highlighted one particular use case they were implementing in the healthcare field. One of Luxoft's clients is a large health insurance provider, which had a problem with its claims processes. As anyone who has ever received an annoyingly inaccurate medical bill has realized, claims errors can easily happen in healthcare due to the time lag between system updates across pharmacies, medical-care providers, and insurance systems.

Luxoft implemented a digital ledger solution using the Hyperledger Fabric to run on AWS and developed digital interfaces to link the legacy systems to each member in the claims process chain. As you can imagine, the blockchain's accuracy can save providers huge amounts of time administering claims adjustments and customer complaints, while also increasing customer satisfaction.

Partnering its way in

It should be noted that this is not a proprietary Amazon blockchain solution. It seems to merely be Luxoft and other partners deploying open-source blockchain technology on AWS. Even on its blockchain website, Amazon says, "AWS is investing in blockchain through our partner ecosystem. If you're involved in Healthcare and Life Sciences, Financial Services, Supply Chain Management, Security, or Compliance, and would like to innovate with us, we welcome your proposals."

Interestingly, Amazon lists many other major companies' blockchain products on its AWS Blockchain website, suggesting that Amazon is merely hosting third-party solutions, not providing proprietary tools. In addition, Amazon is not listed as a member of the Hyperledger Project, where the blockchain standards are being developed in a collaboration among many major corporations.

Of course, open source means exactly that: There is nothing especially proprietary about the technology, although I suppose if a company has contributed heavily to the project, as IBM and others companies have, it could give these companies credibility with customers that need the most advanced and secure solutions. Still, it's unclear if there are big advantages to being heavily involved in actually developing blockchain technology.

That could be a reason Amazon has chosen to open itself up to a partnership, and not devote significant resources to blockchain technology (Amazon is busy doing about a million other things). Of course, AWS is already by far the largest cloud infrastructure player, so as long as other companies can run their blockchains on AWS, Amazon will continue collecting fees for storage and compute functions.

Amazon is concentrating on working with as many consulting companies as possible, making these other tech companies, and not the end customers, Amazon's true customers.

The current state of blockchain technology

While there is a lot of excitement and hype around the possibilities of blockchain solutions to completely transform industries, investors should be aware that just because there is a new technology doesn't mean every company needs its own form of the solution -- especially when it's open-source. Amazon seems to have come to the conclusion that using and hosting the new technology, not developing it, might be the best strategy, especially when other firms are doing the heavy lifting for you.

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Billy Duberstein owns shares of Amazon and IBM. The Motley Fool owns shares of and recommends Amazon. The Motley Fool recommends Luxoft Holding. The Motley Fool has a disclosure policy.